Retiring Chief Executive Richard Raeburn reflects on past achievement and future challenges.
The Financial Stability Report published bi-annually by the Bank of England provides an analysis of the market turmoil of recent weeks along with much data in graphical form. The extraordinary conditions are all too clear with $ Libor reaching more than 360bp over official rates and 200bp in the case of sterling. The flow of cash out of the interbank market into government paper drove US treasury bill yields towards, and briefly below, zero.
The European Commission is taking steps on both accounting and ratings agencies in a bid to restore confidence in the financial system. Rating agencies face a mandatory regime replacing a voluntary code of conduct.
The changes introduced by the Companies Act 2006, which will be fully implemented by next October, will enable companies to achieve cost savings in addition to encouraging “good boardroom behaviour”, claims PricewaterhouseCoopers Legal LLP.
The greater focus on the need for transparency on financial instruments, driven by current market conditions, have prompted the International Accounting Standards Board (IASB) to issue an exposure draft of proposed amendments to its IFRS 7 disclosure standard.
A research paper from accountants’ body ACCA considers the effects of accounting standards on the cost of equity and whether improvements in accounting and disclosure quality are driven by mandatory standards or market incentives.
Given the recession and the poor economic outlook what should the strategy be for companies, the financial sector and treasurers in 2009.
This year has proved to be challenging for UK corporate treasurers with foreign exchange exposure a key and unexpected emerging risk. With currency movements likely to materially impact cashflow, passively relying on the notion that currency fluctuations will even themselves out in the long run could be dangerous. What is the cause of this volatility, can we expect more and what should corporates do?
One of the few big M&A deals of the last few months has been accompanied by one of the first big equity money-raisings in some time. Electricite de France which trades in the UK as EDF Energy announced its plans to execute a £12.4 bn takeover of British Energy, the UK nuclear power generator.
In credit-constrained times, the World Bank made much of the attraction of safe havens as it tapped the market. Raising $1.5bn, its first dollar benchmark bond since May 2006, World Bank treasurer Kenneth Lay said: “The past several months have been a particularly difficult period in international finance.”
It has been a year to remember – mostly for all the wrong reasons as far as the business world is concerned. Despite an environment that worsens by the day, the ACT’s annual dinner, held last month at London’s Grosvenor House Hotel, was notably free of doom and gloom. Its guest speaker, shadow foreign secretary and former Conservative Party leader William Hague, kept the tone for the evening informal and only turned to the dire state of the economy in the latter stages of his speech.
The Co-operative Group has come a long way in the seven years since its treasurer, Roger Morgan, joined the organisation. “Back then it was sometimes referred to as the sleeping giant of the high street,” Morgan explains. “Today, it is commercially focused and successful, and its co-operative ownership and the ethical principles that underpin its business activities are the driving force behind the renaissance of one of the UK’s best-loved brands.
In the endless media coverage of the current economic crisis, born from the credit crunch, it was something of a relief and pleasure to be able to hear some reasonably positive messages for funding and capital markets. They came during the ACT’s recent breakfast briefing on opportunities in Islamic finance, sponsored by Gatehouse Bank.
The annual JPMorgan Asset Management Global Cash Management Survey is now complete. It is the 10th edition of the survey, which has been providing a benchmark for the identification of cash management trends among treasurers since its launch in 1999.
As the economy plunges into recession and credit continues to be scarce for all sectors, the working capital cycle has become an important issue for all businesses. A packed regional ACT North West conference discussed the various dimensions to this important issue.
Increasing lifespans, while good news for pensioners, pose a problem for the companies financing defined benefit pension schemes. Life insurers have a similar risk with their annuity books. In this article we concentrate on pension schemes; the principles apply correspondingly to annuity books.
As the smoke begins to clear from the collapse and near demise of some of the financial world’s biggest names this autumn, what lessons can be learned? And what steps might prevent a future repetition of the massive volatility? Some guidelines for the future were suggested recently by John Hull of the University of Toronto, the British-born professor of derivatives and risk management at the university’s Joseph L Rotman School of Management.
By 2012 the Pension Protection Fund (PPF) is expected to have around 250,000 members, and ultimately the number could double. The PPF came into existence because it was politically unacceptable for members of occupational pension schemes to be left without a pension when sponsors failed after employees had been encouraged by the government to save in such schemes. Another political reality is that the PPF cannot collect premiums fast enough to keep pace with the liabilities it is taking on: raising them to a market level is not an option for any hue of government. But the declining number of defined benefit occupational pension schemes – and thus a lower revenue base – will exacerbate the situation. At some stage it is even possible that the PPF will have to cut back on benefits, which in any event are subject to caps and limits. Yet the PPF’s benefits have to be regarded as secure and provide an effective benchmark for alternatives.
The eighth, and latest, in the ACT’s talkingtreasury series, sponsored by RBS, was held in Hong Kong on 21 October as the repercussions of the growing world financial crisis made themselves felt locally.
Shares in CITIC Pacific, the Hong Kong subsidiary of China’s stateowned investment group, were in freefall on the day of the conference itself. The company had just revealed that a series of unauthorised foreign exchange bets made by its senior executives on the direction of the Australian dollar and the euro threatened to misfire spectacularly and lose $2bn. Management had mistakenly assumed the US dollar would continue to depreciate against its Australian counterpart, after a weak performance in recent years.
If this time last year someone had said to me that we would have lost Lehman Brothers, that Goldman Sachs would no longer be an investment bank, that some major financial institutions would be falling over themselves to amalgamate despite the clear competition issues, that others would be part-nationalised, and still others would be trying to avoid that fate by selling equity on less preferential terms to an overseas investor than the UK government was offering, then I would honestly have thought them mad. And yet here we are.
Starting a new job in a cathedral just before Christmas, as I did last year, is madness. There are no certainties except that of putting one’s foot in it every five minutes. There is also always somebody who is the cathedral equivalent of what we had on the oil rigs for new recruits: sending them to bring back a well head, or find the Christmas tree (Google it to see). And, of course, Liverpool is known for its sense of humour, which is not unkind but can be quite… well, ‘amusing’ had better do.
